CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Poverty is unrelenting and implacable enemy with a collection of weapon of child death,

starvation, disease, illiteracy, violence, child trafficking just to mention a few. It furthermore

can been as a circumstances where some group with similar characteristics continuously

undergo deprivation with respect to fundamental necessities such as shelter, food, healthcare,

education, access to communication tools , clothing among others. Moreover, others describe

poverty as people or families with earnings under a certain threshold level regardless of their

standards of living. This definition comprises low level of earnings, inaccessible healthcare

facility, poor hygienic condition, lack of portable drinking water, high level of illiteracy rate,

poor security and protection from preventable crime among others. (Nii K. 2002).

Poverty is a world phenomenon even though is more endemic in developing countries than

the developed world. Records have it that seventy-five per cent of the world‟s poorest

countries are located in Africa. In the last 30 years, extreme poverty incidence globally has

decreased (from 40% to below 20%) but has little effect in African countries. Currently, in

sub-Sahara Africa, more than 40% of people live in extreme poverty (our-africa.org)

In the case of Ghana, even though successive governments‟ implementation of policies had

led to general decline in the poverty incidence in the country, poverty is still a force to reckon

with in the deprived rural communities. It is unarguable that more than half of the nation‟s

population lives in rural areas. Currently, poverty in the rural areas has become a great

concern in the country making the poor people and their various deprived regions to live in

absolute low standard of living environments. Records have it that, the poorest areas in the

country are the three northern regions where individuals encounter chronic food insecurity

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and high level of illiteracy among the host of others. However, there are pockets of poor and

extremely poor people in every region in Ghana.

The poverty situation in Ghana is cyclical one that the Government and other development

partners have developed various policy interventions to help reduce it. Some of the

intervention strategies adopted by government include; the National Youth Employment

Program (NYEP), Livelihood Empowerment Against Poverty (LEAP), National Health

Insurance Scheme (NHIS) and Microfinance and Small Loans Scheme (MASLOC) among

others.

The NYEP was created in 2006 to help reduce the increasing level of youth unemployment

with the desire to empowering Ghanaian youth so they could add positively to the socio-

economic and sustainable development of the nation. This initiative had spread to rural areas

where they employed the youth in the rural communities into one of the modules in the

programme called youth in agriculture. This generated a source of livelihood for the rural

folk‟s hence reduced extreme poverty among them.

LEAP is a government social cash grant programme which provides cash and health

protection to extremely disadvantaged individuals or households across Ghana with at least

one of three demographic categories; households with orphan or vulnerable child (OVC),

elderly disadvantaged and person with extreme disability who are weak to involve themselves

in any economic activities. The main objective behind this programme is to help eliminate

extreme poverty among poor households in the country more especially in the rural

communities. It is believed that the beneficiaries of this intervention are poorer than the

country‟s rural average with a daily per capita expenditure grossly 85 US cent.

The MASLOC is a microfinance apex body responsible for implementing the government of

Ghana microfinance programmes targeted at reducing poverty, creating jobs and wealth.

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MASLOC does not only disburse micro and small loans to its clients but further provides

business advisory services, preparation and capacity building for small and medium scale

enterprises (SMEs).

The above policy interventions are premised on the ideology that poverty is extreme in rural

communities in Ghana and the fact that the poor lack the ability to escape from extreme

poverty themselves. The objective of these interventions is to eliminate extreme poverty and

not to eradicate poverty in its entirety. It is therefore clear from global perspective that

poverty reduction needed direct financial interventions in the rural communities.

Microfinance has been accepted by all stakeholders including governments, foundations,

community development groups, non-governmental organizations and even for profit private

firms because of its efficacy to helping reduce the level of extreme poverty among the poor in

the rural communities.

The idea of microfinance has been in the system for several centuries. During those periods, a

lot of savings and credit groups that have operated for centuries include the "susus" of Ghana,

"chit funds" in India, "tandas" in Mexico, "arisan" in Indonesia, "cheetu" just to mention few

as well as numerous savings clubs and burial societies found all over the world („The New

Vision of Microfinance,2004) . According to the New Vision of Microfinance 2004,

available proof points to the fact that, one of the first microcredits in Africa was established

in Northern Ghana in 1955 by some Canadian Catholic Missionaries. Susu, which is we

commonly associate with microfinance is believed to have come from Nigeria and now a

household name in our society spread (The New Vision of Microfinance 2004).

Schreiner and Colombet (2001), microfinance is the attempt to help the poor and the

vulnerable gain access to small credit as well as get the opportunity to make deposit or save

3
which they were denied by the traditional banks. Therefore, microfinance involves not only

the provision of financial services such as savings, loans but also insurance to poor people

living in both urban and rural communities who are denied financial services from the formal

financial sector. The providers of microfinance services include Rural Banks, Savings and

Loans Companies, Credit Unions, Susu Companies among others.

It also involves lending to clients who do not have required collateral, recognized business

accounts or a reputable credit history. Individual collateral is substituted for by group

collateral. This makes it possible for people in the catchment areas of Akuapem Rural Bank

to access microfinance services provided by the bank.

1.2 Poverty and Vulnerability incidence in Akuapem North Municipality

Vulnerability in this scope is explained as the diminished capacity of an individual or group

to forestall, handle, fight and recover from the impact of a natural or man-made hazard in

relation to physical, economic, social, political, religious and health issues. The 2010

population and housing census disclosed some level of vulnerability in Akuapem North

Municipality.

The fact remains that people react differently to risk as a result of the kind of association or

group, gender, ethnic background, age, socialization process among others but almost all the

people in the municipality are Ghanaian by birth (91.5%) with total migrant population

representing 8.5% of the total population which is 136,483. Measures and structures to reduce

the impact of vulnerability such as mitigation, preparedness, prediction, guiding capacities,

local government and traditional structures exist in the municipality to tackle the root cause

of vulnerability. Most vulnerable groups include persons with disability, the aged, children,

pregnant and nursing mothers among others.

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Poverty like other phenomenon has varying perception and understanding from different

people due to its diverse nature and background. Some indicators used in measuring poverty

in the municipality include but not limited to epidemics in communities, high rate of social

vices, poor sanitation, poor housing conditions or dilapidated houses, unemployment, lack of

social amenities among others. Some of the common causes of poverty in the municipality

are; poor management of scarce resources, large family size, lack of skills training, low level

of education (Akuapem N, 2015). The predominant occupation in the municipality is

farming. 50.7 per cent of the population in the municipality is below the poverty line. This

means that five (5) out of ten (10) people in the municipality are poor which is slightly higher

than the regional figure where three (3) out of ten (10) people are poor, Ghana Population

Census (2010).

1.3 Statement of problem

The emergence of microfinance institutions has helped to reach out to the unbanked

population in the country especially the poor both in rural and urban areas. The main aim of

this institution is to complement government and other Non-governmental organizations

effort to help alleviate the level of extreme poverty among the unbanked poor in the rural

communities (Chirwa, 2002). Various microfinance institutions and other stakeholders like

government appear to take the impact of the microfinance interventions for granted. The

problem with government providing microfinance services for the rural poor is that, the rural

folks see the funds as free with no intention to pay back. This has affected other institutions

that provide the same services negatively (Ashun, 2010).

This condition is compelling many microfinance institutions to move away from providing

funds to the rural folks to the urban areas because these institutions must make profit to be in

business and for their investors. This situation makes it difficult for these service providers to

5
meet the rationale behind their establishment. It is on this premise that this thesis want to find

the loan portfolio that the bank Akuapem Rural Bank disbursed to microfinance clients, the

default rate, repayment rate, responses towards the fund and financial progress before and

after the receipt of the loan over a particular period of time.

1.4 Research objectives

The broad objective of the study is to analyze the role of Akuapem Rural Bank in helping to

alleviate poverty among the poor in its catchment area.

The specific objectives of this study were to ascertain whether or not;

i. Microfinance services rendered by the bank help improve the businesses of the poor

household in its catchment area.

ii. Provision of microfinance services by the bank helps the poor households in its

catchment area to improve their livelihood.

iii. A microfinance service is really able to reach out to the unbanked population among

the poor household in Akuapem.

1.5 Research questions

1. Has the microfinance services rendered by the bank helped improve the businesses of

poor households in its catchment areas?

2. Has the provision of microfinance services by the bank helped the poor households in

its catchment area to improve their livelihood?

3. Has the bank really able to reach out to the unbanked population among the poor

households in its catchment area?

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1.6 Rationale behind the Study

The study brings to light the extent to which microfinance activities of rural banks is helping

to reach out to the unbanked poor in rural communities. This therefore helps policy makers to

identify the vulnerable communities and mount tailor-made services for them. The study as

well outlines the challenges faced by the various institutions providing microfinance services

to the poor and see how best they could improve on it to meet the set target.

The study also highlights the contribution made by these rural banks to help government and

other development partners‟ effort to help lift the rural poor out of chronic poverty to an

acceptable standard of living.

Finally the study unveils the extent to which the poverty alleviation/micro credit program has

succeeded. It would also show if the rural poor have been able to move themselves from

endemic poverty through the acquisition of household assets, pay their children‟s school fees

and are able to feed themselves.

1.7 Organization of the Study

This thesis comprises five main chapters. The first chapter talks about the introduction which

involves the background, the objectives of the research and provides the rationale behind the

study. The second chapter deals with necessary literature review on issues like microfinance,

concept of poverty, Government policy interventions to alleviate poverty etc. Chapter three

will look at methodology that would be used. It briefly looks at the population, the size of the

sample and sampling procedures, data collecting instruments, data administration as well as

analysis of data. Chapter four will be devoted for the discussion of the results from data

collected from the field and from the books of Akuapem Rural Bank. The final chapter then

looks at summary, conclusions and recommendations.

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 CHAPTER TWO

LITERATURE REVIEW

2.0 INTRODUCTION

Traditionally, the concept of poverty has been associated with income which is the main

subject matter discussed every day. Currently, individuals or people are classified as poor

when they are deprived of resources including income needed to obtain certain basic

necessities of life. Examples of such basic necessities may include but not limited to material

goods, meal, medical care among others that help them to be responsible in society

(International Poverty Centre, United Nation‟s Development Programme).

According to Ted K. Bradshaw (2006), poverty in general terms is lack of basic necessities in

life. These necessities include food, shelter, medical care and safety which are basic with

regards to human dignity. The writer continued to say needs are not uniform across cultures

and traditions. Therefore, a need of a particular geographical location might not be a need for

another area. Even though stakeholders and policy makers are aware of the arsenals poverty

possess, it is more difficult and complicated to really understand its concept (Carney P 1992).

The main goal behind this study is to access the books for conceptual knowledge of poverty

that is associated with the practices that are fundamental to poverty alleviation which in the

long run leads to community development. There are five theories of poverty that would be

accessed and for each theory, there are set of variables that play major roles linked with

causing poverty. All the theories that would be accessed have different view and as such

results in unique way in community development intervention strategy.

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2.1 Theories of Poverty

2.1.1 Poverty caused by individual Deficiencies

This theory solely looks at individual as the originator of his/her own poverty situation. It

argued that if individual work harder and involves himself in multiple task, he would have

avoided this situation. This theory also looks at individual‟s lack or low level of intelligence

which is not reversible as a contributing factor to poverty.

Individual poverty deficiencies theory stems from the belief that God is the ultimate giver of

wealth and no individual can be wealthy without God‟s blessing. This therefore created the

impression among the people that if one is not wealthy, it might be as result of his sins or the

sins of his forefathers. This had made a lot of people to ascribe their poor conditions to the

supernatural being. They blame their misfortune not on themselves but as a sole

responsibility of God, Schiller (1989)

The neo-classical encourages individualistic sources of poverty. They argue on the premise

that individuals seek to maximize their own interest by making their choices with regards to

consumption and investment. According to this theory, when people choose short term and

low-payoff returns, economic theory holds the individual entirely responsible for the

decision. For example when an individual who rather to invest his hard earn income for profit

decides to spend such resources on consumption.

The economic theory that blames poverty on the inability of the poor to access incentives to

improve their poor conditions rather bleeds poverty. Gwartney and McCaleb (1985), argue

that the more years that is used in combating poverty, the more the concept of poverty

become stronger and the more poverty is increased among the working poor in spite of

unprecedented increases in welfare expenditures basically because of the welfare schemes,

9
Ted K. Bradshaw (2005). The paper continued that they decided that simple application of

basic economic theory indicates, the problems lie in the structural strategies of poverty

programmes. Currently, the social intervention programmes is counter-productive with self-

improvement and protects individuals against the repercussions of their own bad decisions.

The fact that poverty is still with us does not mean that we are losing the fight against poverty

or we are not doing enough but rather too much is been done that is counterproductive

(Gwartney and McCaleb, 1985). They suggested in order to solving poverty, the punishment

for poverty must be huge enough that nobody will choose it and welfare programmes must be

limited to people with disability and those unable to work.

The problem with this theory is that, it alludes to the fact that anybody who is poor does not

work hard and by inference lazy. This is hard to believe because in the developing world,

unemployment is high; salaries are very low with very high cost of living. This makes it

difficult for young graduates to get jobs and even the few that get some cannot save because

of low wages and the financial pressure from the extended family.

2.1.2 Poverty caused by Cultural and Traditional Belief Systems that Support Sub-

Cultures of Poverty

According to the theory, poverty is embedded in the society inherited customs and traditions

which are being abided by individuals in the society. These individuals in the society

unconsciously are made poor by this dysfunctioning culture and tradition and are not entirely

to be blamed for their conditions. This theory is associated with poor people. Oscar Lewis

(1997) defines culture of poverty as a set of traditions, beliefs, customs and values carried out

from generation to the next generation.

These beliefs and values are internalized by the younger generation and it‟s become very

difficult for them to position themselves to changes that will lead to an improvement in life.

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Migrants and immigrants are more vulnerable to this culture of poverty. For example, in

Ghana, the uneducated migrants from the Northern part of the country popularly called

“kayayoe” come to Accra for greener pastures. They end up sleeping in kiosk, containers and

ghettos and begin to procreate. As their number increases, they create their own community

with their set of beliefs and values that become generational. Once officials sit back for

communities of this sort to be established, it becomes more difficult to fight poverty because

the children will be socialized with these values and they will see it as a way of life. Any

attempt to make things right is an attempt on their way of life and they will resist it (Ryan,

1976).

So far as people will agree with this theory, it might also happen that, people living the

culture of poverty have no opportunities to alleviate their poverty and not necessarily they

internalize such cultures that are counter-productive.

2.1.3 Poverty caused by Economic, Political and Social Discrimination

The earlier theory talks about poverty as a result of individual initiative and the second theory

alludes to the fact that culture and tradition are responsible for individual being poor. This

third theory overrides all because, once the system has not created opportunities for people to

make living, no matter how much they work hard or how good the beliefs and values of their

society is , they will continue to wallow in poverty. This theory does not blame the

individual as the originator or source of poverty but rather blame the economic, political and

social system which refuses to create the enabling environment for the citizens especially the

less privilege to earn income and good standard of living (Yoon and Hirschl, 2003).

More of poverty literature agreed that the current economic system is discriminatory against

the poor regardless of their skills and competent level. Also, one problem of the working poor

is the fact that the wage is very meager which is blamed on structural barriers preventing poor

11
households from getting lucrative jobs as well as the underdevelopment of sectors that

employ lower skilled job seekers. These structural barriers favour the rich and powerful who

make economic policies for the poor. The elimination of these barriers can only be facilitated

through education and training programmes for the minority to get access to better jobs which

can help lift them from the realm of poverty (Jencks, 1996).

2.1.4 Poverty caused by Environmental Disparities

It is undeniable fact that poverty among rural folks, ghetto youth, urban disinvestment, third-

world poverty etc. are all examples of poverty caused by geographical disparities. According

to Morrill and Wohlenberg (1973) poverty is more prevalence in certain areas of the world

and some development literature has provided answers to why some regions are economically

non-competitive. Some responses given include but not limited to proximity to natural

resources, lack of technological advancement, disinvestment, and population growth among

others.

According to Morrill and Wohlenberg (1973), geographical theory of poverty means that the

poverty intervention must be directed to community developers to target places and processes

by which they can become self-sustaining rather than focusing on individuals, businesses,

governments, welfare systems or cultural processes. There are evidence around the world that

some disadvantaged communities are able to untangle themselves from the web of poverty

which serve as example for others to follow. Microfinance happens to be one of the

recommended programmes to fight against rural poverty.

Microfinance has widely and arguably been recognized as one of the best tools to combat

poverty in the rural communities more specifically in developing countries where majority of

the population resides in rural areas. Microfinance comprises of variety of financial services

12
with the primary target of low income clients. These services include small loans, savings,

insurance, remittance, business advisory among a host of others.

According to Atlantic International Studies Organization, microfinance can be loosely

explained as the provision of small loans to those who would not typically be able to borrow

due to a lack of collateral required in the main stream banks. This can be provided by a

number of sources including family members, pawnshops, non-governmental organization

and commercial banks. The formalization of microfinance in recent years has been embraced

by two theories of development; neo-liberalism and participatory development.

Neo-liberalism became relevant theory of development in the 1980s and continues to be one

of the theoretical motivations for influential organizations such as the World Bank and the

International Monetary Fund. According to this theory, individuals are trusted to make

rational decisions that reflect their best interest. This means that once these decisions lead to

the betterment of their lives, society becomes better off. The theory indicates that the

responsibility of the state is to regulate the system rather than initiator of economic activity.

This implies that when state takes Centre stage of economic activity, it places more weight on

economic growth than individual welfare, local culture and tradition and the environment in

development proposal (Weber and Jensen, 2004).

Microfinance “bottom-up” approach of poverty alleviation contradicts with the “top-down”

methodology of neo-liberalism. However, micro financing for small scale businesses became

a neo-liberalism construct when one views it as the formalizing an informal economy.

According to a report on poverty published by World Bank, (International Finance

Corporation, 1956) “Private businesses‟ operating through the market is the main engine of

sustained economic growth”. The neo-liberalism believe that if the system expose pre-

13
existing informal economic networks as well as provide the opportunity for the creation of

additional formal businesses, the macroeconomic situation of the state will improve.

With regards to Participatory Development theory, the primary focus is on power and

community. The theory looks at power holistically which includes structures of knowledge,

social situations and political influence. It always advocates for the use of local inputs such as

local knowledge, local capital and local labour in implementing communal projects. The

theory believes that the community is the agent that needs development rather than individual

or the state. Since development is community based, Participatory Development is largely

delivered by NGOs and community organizations rather than national or international bodies.

Any developmental goal is made possible through recognized institutions though some

malfunction. Microfinance therefore becomes the means of developing deprived communities

in remote areas.

2.2 Brief History of Microfinance

According to microfinance historians, microfinance can be dated back to the early to middle

1800s when one of the microcredit historians (Lysander Spooner) wrote on the benefits that

small companies derive from accessing microfinance services (Lysander Spooner, 1846).

Currently, the use of micro financing is believed to have gained its recognition in the early

1970s when organizations such as Grameen Bank of Bangladesh with pioneer Mohammad

Yunus who subsequently won the Nobel Peace Prize for his leadership in micro financing the

rural poor who were neglected for very long period of time. Other pioneers include Akhtar

Hameed Khad who is the founder of Bangladesh Academy for Rural Development (Nasim

Yousaf, 2009).

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Once the microfinance floodgate had opened, a lot of companies began lending to the

underserved poor in the villages across the world. It was during this period of extending

microfinance activities to the poor that the authorities realized that the underserved minority

could really pay back the microcredit. It was then realized that it is equally beneficial to

provide financial services to the poor people through market based enterprises without

subsidy. Currently, it is argued that, Shore bank was the first recognized microfinance and

community development bank founded 1974 in Chicago (Nasim Yousaf, 2009).

The evolution of microfinance in Ghana dated back to 1955 when Canadian catholic

missionaries established a credit union in Northern Ghana. This credit union was believed to

be the first credit union to be established in Africa. Even before its establishment,

traditionally, people in various communities saved and took small loans from individuals,

friends, family members and groups for projects like farming, businesses, trading, animal

rearing etc. Records also have it that the term “susu” which currently happens to be

microfinance methodology originated from Nigeria for several decades ago.

According to some historians of microfinance, microfinance has gone through four (4)

different phases since its inception across the globe of which Ghana cannot be excluded

(Ministry of Finance-Ghana, 2010). These phases include;

1. Phase one which basically refers to the period where government provide subsidized

credit to people with the perception that lack of cheap credit or money was the

hindrance in eliminating poverty among the poor in the remote areas in the early

1950s.

2. Phase two involved the provision of small loans to poor people through the activities

of NGOs between 1960s and 1970s.

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 3. Phase three saw the formalization of the microfinance activities in the system in the

early 1990s.

4. Phase four is the period where microfinance became commercialized and

subsequently gained recognition with the mainstreaming activities into the financial

sector.

The microfinance in Ghana is grouped into four (4) categories namely

i. Formal providers comprising savings and loans companies, rural and community

banks and some development banks.

ii. Semi-formal providers involving credit unions, financial non-governmental

organizations and cooperatives

iii. Informal suppliers which is made up of „susu‟ collectors and clubs, rotating and

cumulating savings and credit associations, traders, money lenders and other

individuals.

iv. Public sector programmes that have developed financial and non-financial services for

their clients.

There is a worldwide perception that microfinance is financially sustainable tool designed

to reach out to a lot of poor people in deprived communities who are unable to access

financial services from the main stream banks due to the lack of collateral required. In

Ghana, significant number of microfinance clients is predominantly women in both rural

and urban areas. These clients are mostly into farming, food processing, petty trading etc.

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2.3 Microfinance as an Instrument to Reduce Poverty in Ghana

Ghana and other development partners have introduced a lot of policy measures to fight

against poverty and income inequality in the country of which Ghana‟s Growth and Poverty

Reduction Strategy, Millennium Development Authority (MiDA), Support Programme for

Enterprise Empowerment and Development (SPEED), Social Investment Fund (SIF),

Livelihood Empowerment Against Poverty (LEAP), Microfinance and Small Loans Scheme

(MASLOC) are included.

The primary objective of introducing Ghana‟s Growth and Poverty Reduction Strategy

(GPRS II) is to provide “sustainable equitable growth, accelerated poverty reduction and

protection of the vulnerable and excluded within a decentralized democratic environment”

(Johnson and Victor, 2007). The rational is to eradicate widespread poverty and growing

income inequality especially among the productive poor who constitute majority of the

working force according to the 2010 population and housing census. It aimed at providing

microcredit for poor and underserved communities to be able to engage themselves in any

economic activities for better standard of living.

The Millennium Development Authority (MiDA) was established in 2006 to spearhead the

smooth implementation of the programme under the Millennium Challenge Account with the

ultimate aim of sustainable reduction of poverty through growth. The growth comes as result

of empowering the poor to live a sustainable life. This goal is contained in the agreement

between Ghana and the Millennium Challenge Corporation acting for and on behalf of the

Government of the United States of American (Ministry of Finance-Ghana, 2010).

Support Programme for Enterprise Empowerment and Development (SPEED) is the

continuation of the programme for the Promotion of Small and Micro Enterprise (PSME) that

started way back in 1990 with the aim of reducing increasing level of poverty in the Ghanaian

17
society. It is also to support the credit reference service, set up of a rating service and

contribute to quality standards for service providers. This will offer opportunity to small scale

enterprises to access credit facility to start and expand their businesses which will lead to

reduction of unemployment and poverty (Ministry of Finance-Ghana, 2010).

Social Investment Fund (SIF) was introduced in 1998 by Government of Ghana, the African

Development Bank (AFDB) and United Nations Development Programme (UNDP). The

main aim is to help reduce poverty in Ghana through institutional and capacity building,

human development and targeted pro-poor socio-economic investment through the use of

microfinance as a poverty alleviation tool to achieve accelerated growth in the rural areas.

SIF also has the responsibility to help increase access to basic social services such as

education, health care and to bring governance to the doorsteps of Ghanaians especially the

poor. The objective of SIF has helped to build the capacity of microfinance institutions to

enable them reach out to the rural poor (Ministry of Finance-Ghana, 2010).

LEAP is a state social cash transfer programme which provides cash and health protection to

extremely poor family or households across Ghana with at least one of three demographic

categories; households or family with orphan or vulnerable child (OVC), elderly poor and

person with extreme disability who are unable to work (PWD). LEAP households are poorer

than Ghana‟s national rural average with a median per capita daily expenditure of

approximately 85 US cents. The main objective behind this programme is to help eliminate

extreme poverty among poor households in the country more especially in the rural

communities.

The MASLOC is a microfinance apex body responsible for implementing the Government of

Ghana microfinance programmes targeted at reducing poverty, creating jobs and wealth.

Since its establishment, MASLOC has modestly established itself not only as a microfinance

18
institution that provide micro and small credits to the identified poor in the various sectors of

the Ghanaian economy but also provides business advisory services, training and capacity

building for small and medium scale enterprises (SMEs) as well as collaborating institutions,

to provide them with the required skills and knowledge in managing their businesses

efficiently and effectively.

2.4 Empirical Evidence of Positive Impact of Microfinance on Poverty

According to research conducted by Murdoch and Haley (2002:5), microfinance has been

proven to be an effective method of alleviating poverty. The outcome of the findings shown

that clients who participated in microfinance programs have enjoyed increased household

income, increased asset acquisition, better nutrition and health, the privilege to achieve higher

education, a decrease in vulnerability to economic shock, greater empowerment among

others.

One of the early and most widely cited of the poverty impact studies is Hulme and Mosley

(1996). The studies made use of control group approach looking at the changes in income for

households in villages with microfinance programs and for similar households in non-

program areas. As far as possible, the control groups were drawn from households eligible for

loans who have been approved for loans by the institutions concerned, but who have yet to

receive a loan. Programs in a number of countries are considered including the Grameen

Bank in Bangladesh and the Bank Rakyat Indonesian.

Again, Murdoch and Haley (2002:111-112) conducted and extensive investigation of the

effects of microfinance on the realization of the United Nation‟s Millennium Goals, the first

of which is to eradicate extreme poverty and hunger. Their findings were as follows:

19
 Children‟s Diet; Researchers from the Noguchi Memorial Institute in Ghana (Dr.

Margaret Armah-Klemesu, University of Ghana) conducted a dietary intake study of

children of credit with education members and also nonparticipants. The study found

that the dietary quality of the foods given to participants‟ children was relatively

higher and estimated calories intake was very significant as compare to

nonparticipants‟ children.

 Children‟s Nutritional Status; Measurements of the same children in Ghana showed

the nutritional status of participants‟ one-year-olds-both weight-for-age and height-

for-age also significantly improved relative to the children of residents in control

communities. For example, the percentage of participants‟ children categorized as

malnourished based on height-for-age decreased by eight percentage points between

the baseline and follow-up periods while the percentage of malnourished actually

increased in control communities.

In Bolivia, a microfinance named The SHARE microfinance conducted a study on the

economic situation of clients before and after borrowing. Upon joining the microcredit

program, 64 per cent of clients were classified as „very poor‟ and 36 per cent as

„moderately poor.‟ In March 2001, research demonstrated that 7.2 per cent of clients were

still classified as „very poor,‟ 56.8 per cent as „moderately poor‟ and 36 per cent were no

longer poor. The SHARE program was able to lift one third of their clients above the

poverty line (Simanowitz and Walter 2002).

2.5 Criticisms Against Impact of Microfinance on Poverty

There are others who criticize the microfinance approach to poverty alleviation and even

doubt whether microfinance really alleviate extreme poverty. According to study

conducted by Stanford Social Innovation (Non-Profit Management Institute, 2007),

20
microloans are more beneficial to borrowers living above the poverty line than to

borrowers below the poverty line. The institute explained that this is because clients with

more income are willing to take the risks such as investing in new technologies that will

most likely increase income flows. Poor borrowers on the other hand, tend to take out

conservative loans that protect their subsistence and rarely invest in new technology,

fixed capital or the hiring of labour.

Another problem with microloans according to the institute is the businesses it is intended

to fund. It stated that a client is an entrepreneur in a literal sense. She raises the capital,

manages the business and takes home the earnings. But the „entrepreneurs‟ who have

become heroes in the developed world are usually visionaries who convert new ideas into

successful business models. Although some microcredit clients have created visionary

businesses, the vast majority are caught in subsistence activities. It continued that they

usually have no specialized skills and so must compete with all other self-employed poor

people in entry-level trades. Most have no paid staff, own few assets and operate at too

small a scale to achieve efficiencies and as such make meager earnings (Easton, Nov. 3,

2005).

In general, the evidence is awesomely in favour of microfinance as a tool to increase

household income, smooth consumption, and enable the poor to sustain gains over time. It

enables many impoverished families to earn enough income to rise above the poverty line

and is therefore an effective method of poverty alleviation.

21
 CHAPTER THREE

METHODOLOGY

3.0 Introduction

The focuses of this chapter are to; (i) examine the research methodology of the study, (b)

state in clear terms how the sample is selected, (c) explain the process used in designing the

instrument and collecting the data, (d) explain the statistical procedures used to analyze the

data.

3.1 Research Design

A descriptive survey was used for the purpose of this study. Descriptive survey as described

by Nageswara R. P (2002) is one in which information is solicited with the same

environment. The writer continued that, it is used to obtain information concerning

phenomena with respect to variables or conditions in a situation.

In descriptive survey, data are normally collected using questionnaires, interviews or

observation

3.2 Population/Sample

For the purpose of this study, the population target is taken from microfinance groups of

Akuapem Rural Bank Limited. Microfinance groups were chosen as against individuals

clients because, for an individual who is not a salary worker to qualify for a loan, the person

must save with the bank for a minimum period of three (3) months and should be able to

produce two guarantors who are salary workers. For these reasons, any rural dweller who is

considered to be poor will find it difficult if not impossible to meet these criteria in order to

obtain a microfinance credit from the bank.

22
It is against this background that the bank encouraged the rural people to form groups for it to

be easy for them to access the loan facility. With regards to the group, individuals come

together to form their own group without any influence from the bank. The members in the

group serve as guarantors for each other. Before a group qualifies for a loan facility, each

member must be able to deposit 30% of the amount he/she wants to access. For this reason,

the groups meet once every week in their various communities to contribute towards the 30

percent initial amount required by the bank. The groups guarantee system of loan is

friendlier, community based and serves the best interest of the rural poor than the individual

loan where they must go to the bank themselves. As at December, 2015, there were eighty

one (81) loan groups with regards to Akuapem North Municipality in the books of Akuapem

Rural Bank Limited.

3.3 Sample and Sampling Technique

For this study, the sample was made up of seventy (70) members who were drawn out of ten

(10) microfinance groups with seven (7) members from each group in the Akuapem Rural

Bank Limited within Akuapem North Municipality.

Out of the total of eighty one (81) groups in the books of the bank, it was eighty (80) groups

that qualified to participate for the random selection. This was because one (1) group was not

active for the past six (6) months.

Simple random sampling was used to select these ten (10) groups and the seventy (70)

respondents. According to Gay (1987), „random sampling is the best single way to obtain a

representative sample, no technique, not even random sampling guarantees a representative

sample but the probability is higher for this procedure than for any other‟.

23
The head of the microfinance section of the bank provided the names of all the active groups

that qualified to be part of the selection process on pieces of paper and the papers were mixed

in a bowl. The researcher with the help of some of the staffs of the bank picked the names

one after the other. To give all the groups fair probability of being selected, once a group is

picked and the name recorded, it was placed back into the bowl. If the same group had been

picked again, it was not counted but placed into the bowl again to be mixed up. This process

continued until all the ten (10) groups were picked. With regards to the sample size selection,

the same procedure was replicated to get seven (7) members in each group till the seventy

(70) members were achieved.

Table 3.1 Sample size procedure of the microfinance respondents used in the survey

No Group Name Population Sample size

1 Yesu Mo 38 7

2 Nkabom 20 7

3 Adom Arakwa 20 7

4 Biakoye(Tinkon) 15 7

5 Yesu Di Yenkan 22 7

6 Biakoye(Kwamoso) 24 7

7 Adom 31 7

8 Yesu Mo(Mampong Nkwanta) 20 7

9 Biakoye (Apirede) 16 7

10 Maranatha 28 7

Total 234 70

Source: Akuapem Rural Bank Limited, December, 2015.

24
3.4 Research instrument

For the purpose of this study, questionnaires were used to solicit for information on the field.

According to Leary (1995) the advantage of using questionnaires over interviews and

observation is that, questionnaires are less costly, very easy to administer and allow for

confidentiality than the rest. The above are the reasons why the researcher decided to choose

a descriptive research methodology using designed questionnaires survey as a tool to examine

the impact of microfinance on poverty reduction among the poor in Akuapem North

Municipality using Akuapem Rural Bank Limited as a case study.

The researcher used two different sets of questionnaires, one for the customers and the other

for the head of microfinance of the bank. Both sets of questionnaires contained closed-ended

and opened-ended questions which were very easy to be answered.

3.5 Pre-testing of the research instruments

Before administering the questionnaires to the selected sampled respondents, ten (10)

microfinance clients of the bank who were not part of the sample size in Larteh community

were used to test the research instrument. This process became necessary to enable the

researcher identify and correct questions full of ambiguity, poor clarity among the host of

others before the main data collection to make the final data more valid and acceptable to all.

3.6 Data Collection Technique

Questionnaire was used to collect the primary information/data. Secondary data included

information from text books, journals, publications, websites, International Monetary Fund,

Ministry of Finance, Akuapem Rural Bank among others.

The primary data was collected on the field. The researcher with the help of the head of the

microfinance of the bank contacted the selected groups through their leadership. After getting

25
to the communities, the bank official who was familiar to the groups introduced the

researcher to the leadership of the various groups and stated the purpose of the meeting. The

researcher then took turn to guide the members how to answer the questionnaires. The

respondents were as well guaranteed of confidentiality of any information that they may

provide.

The guarantee was necessary to allay the fears of the participants to encourage them provide

accurate and correct information. The researcher administered the questionnaires personally

to both customers and the bank official.

3.7 Data Processing and Discussion

The data processing comprising examining the survey for precision and fullness, coding and

entering data into database of Statistical Package for Social Sciences (SPSS, version 16.0)

and analyzed descriptive responses according to frequency distributions and descriptive

statistics. Frequency tables, pie charts and descriptive statistics were constructed to display

results with respect to each of the three research questions.

26
 CHAPTER FOUR

RESULTS AND DISCUSSION

4.0 INTRODUCTION

This chapter looks at the three sections of the study. The first section focuses on the

demographic data of the respondents of the study. Secondly this section analyze the impact of

microfinance on the businesses and the living conditions of poor households as well as the

rate of penetration of microfinance services to reach out to the poor in the catchment areas.

The third section of this chapter discusses the role played by the microfinance section of

Akuapem Rural Bank to help alleviate poverty level in its operational areas.

4.1 Demographic features of respondents

The entire respondents were females. According to the microfinance head, the bank took the

decision to use all females for the groups because it‟s easier for the females to pay for their

loan than their male counterpart.

4.2 Age Distribution of Respondents

The age distribution of respondents gives information about the group of people who

patronize the services of the bank. If majority fall within the labour force, the likelihood that

they can help to alleviate extreme poverty is very high. From Table 4.1, majority of

respondents are within the age of 41-60, followed by age range of 26-40 and their frequencies

are thirty seven (37) and twenty five (25) respectively. This gives clear indication that

majority of people who engage in microfinance services are in the labour force, active, able

and willing to work. This means that with little capital, the rural poor can be economically

active and provide basic necessities of life for the dependents which will go a long way to

combat against extreme poverty.

27
Out of the seventy (70) respondents, seven (7) respondents were sixty one (61) years and

above whereas only one (1) respondent was below the age of 25. This throws more light on

the fact that, in the formation of the various groups, people were very mindful of the maturity

levels of the members. This is because the older members have reputation to protect and in

case of default, their children are more likely to pay than the young ones who are now

starting life and are likely to use the credit for consumption rather than its intended purpose.

Table 4.1 Age Distribution of Respondents

Age Frequency Percentage

18-25 1 1.4

26-40 25 35.7

41-60 37 52.9

61+ 7 10.0

Total 70 100

Source: Field Survey, December 2015

4.3 Educational levels of respondents

The educational background of respondents is necessary in order for the bank officials to

develop tailor-made services to the clients and the extent to which they will be taught on best

practices. Table 4.2 was purposely to find the literacy levels of respondents who patronize the

activities of the microfinance in the Akuapem North Municipality. As indicated, out of

seventy (70) respondents, 60 per cent are basic school certificate holders who form majority

of the respondents. It is clear from the table that 20 per cent of the respondents had completed

second cycle institutions whereas 17.1 per cent never had any formal education at all. Only

2.9 per cent attended tertiary institution. This sends clear signal that majority of people in the

rural areas who patronize microfinance services are people with low level of education. This

may mean that people with low level of education are more likely to access financial support

28
from microfinance companies than the mainstream banks simply because of factors including

lack of collateral.

Table 4.2 Education Background of Respondents

Education level Frequency Percentage

Tertiary 2 2.9

Second cycle 14 20

Basic 42 60

No Education 12 17.1

Total 70 100

Source: Field Survey, December 2015

4.4 Occupations of Respondents

Information on the primary occupations of respondents is to know the risky nature of

businesses of the clients and find a best way to cushion them when the need arises. Table 4.3

looks at the occupation of respondents and their various frequencies. The table suggest that

the occupation of majority of respondents are petty traders that accounted for 60 per cent,

followed by food vending which is made up of 25.7 per cent of respondents. Respondents in

the farming sector accounted for 7.1 per cent whereas agro-processing and fashion

contributed to 2.9 per cent and 3 per cent respectively. Its gives suggestion that, petty trading

and food vending which constitute 85.7% are probably low risk occupations that is why they

could easily have access to microfinance credit where as farming, agro-processing and

fashion might be seen as high risk ventures and as such find it difficult to access the funds.

29
Table 4.3 Occupations of the Respondents

Occupation Frequency Percentage

Petty Trade 42 60

Farming 5 7.1

Agro-Processing 2 2.9

Fashion 3 4.3

Food Vending 18 25.7

Total 70 100

Source: Field Survey, December 2015

4.5 Impact of microfinance on the businesses of beneficiaries

From Table 4.4, when respondents were asked the positive impact of microfinance on their

businesses, six (6) respondents said they were able to increase the goods that they bought

(raw materials for their businesses) as a result of the loan whereas two (2) and seven (7)

respondents were able to pay for goods that they bought in cash, able to increase initial

capital respectively. Five (5) respondents were able to increase the goods that they bought

(raw materials for their businesses) and pay for goods that they bought in cash whereas

twenty five (25) respondents were able to increase goods bought and increase initial capitals

as well as twenty five (25) respondents who said they were able to pay cash for goods that

they bought and increase initial capital. This indicates that the respondents were more

interested in increase goods that they bought (raw materials for their businesses) and initial

capital as well as to pay cash for goods bought and increase initial capital.

30
Table 4.4 Impact the Scheme made on Respondent's Business

Impact of the MF Scheme Frequency Percentage

Increase Stock

(raw materials for their businesses) 6 8.6

Able to pay stock in cash 2 2.9

Increase stock and pay stock in cash 5 7.1

Able to increase stock and initial capital 25 35.7

Able to pay cash and increase initial capital 25 35.7

Total 70 100

Source: Field Survey, December 2015

4.6 Source of respondents finance before joining the microfinance

Table 4.5 was a question about the sources of finance of the businesses of respondents before

joining the microfinance scheme. It revealed that thirty five (35) of respondents purchased

their goods on credit followed by funds provided by family members and that of personal

savings. The deduction that was made out of this information suggests that, most of the

respondents were probably buying their raw materials at a higher cost on credit as compared

to when they pay for their raw materials in cash. Buying on credit reduced the level of profit

of respondents. The credit facility from the microfinance enabled the respondents to purchase

goods in cash enhance increased their profit.

31
Table 4.5 Source of respondents finance before joining the microfinance

Source of finance before joining MF Frequency Percentage

Purchase items on credit 35 50

Money lender 8 11.4

Friends 1 1.4

Family members 17 24.3

Personal Savings 9 12.9

Total 70 100

Source: Field Survey, December 2015

4.7 Impact of microfinance on living conditions of beneficiaries households

Apart from the impact of the microfinance on the businesses of the beneficiaries, respondents

were also asked questions concerning their living conditions before and after they joined the

bank. With reference to Table 4.6, 35.7 per cent of respondents were able to provide basic

needs of their dependents which include clothing and school fees for their dependents. The

credit provided by bank helped to improve incomes earned by respondents therefore

respondents were able to meet the basic necessities of life for their dependents. 22.9 per cent

of respondents were able to pay for basic amenities in their various homes which include

utility bills and rent. This was made possible because respondents can now access credit from

the microfinance without stress which helped them to improve their income generating

activities. 18.6 per cent of respondents can now save for future expenditure and 20 per cent of

them provided basic needs and save at the same time.

32
Table 4.6 Has joining the microfinance improved your living condition

Living condition Frequency Percentage

Provide needs of dependents 25 35.7

Pay for basic amenities 16 22.9

Savings 13 18.6

Provide basic needs and saving 14 20

Others 2 2.8

Total 70 100

Source: Field Survey, December 2015

4.8 Household consumption

Respondents were asked what impact has microfinance had on their daily meal after

accessing microfinance credit. According to Table 4.7, 51.4 per cent of respondents made it

known that, since they joined the microfinance groups, their food consumption has been

improved significantly. This means that if respondent consumption level was one meal per

day before joining the microfinance group, after joining the group, such respondent consumes

two meals per day. Such respondents become better-off than before. 24.3 per cent of

respondents during the interview indicated that their consumption level has not improved

much. This means that those respondents consumption has improved but not enough to make

a meaningful conclusion out of it. The rest of respondents who constitutes 24.3 per cent

admitted that before and after the introduction of microfinance credits, their consumption

remains the same.

33
Table 4.7 Change in meal since the respondent joined the microfinance

Nature of meal intake Frequency Percentage

Improved significantly 36 51.4

Not improve much 17 24.3

Remain the same 17 24.3

Total 70 100

Source: Field Survey, December 2015

4.9 Home ownership before joining microfinance group

Respondents were asked the question to know the number that owns their own house before

joining the microfinance scheme. This will help to make meaningful assessment on how the

microfinance scheme has helped clients in terms of home ownership. From Diagram 4.8,

majority of respondents who constitute 57.1 per cent said they have no house before joining

the microfinance scheme.

This means that those respondents were living in rented apartment before joining the

microfinance. 42.9 per cent of the respondents on the other hand were living in their own

home or family house before joining the microfinance. This response will help to make

comparative analysis on whether or not microfinance services of the bank have positive

impact on the ownership of homes on respondents.

34
 Diagram 4.8 Ownership of place of
abode before joining the scheme

Yes
43%

No
57%

Source: Field Survey, December 2015

4.10 Does the respondent own a house after the joining the microfinance

Table 4.9 analyses the ownership of house of respondents after joining the microfinance

scheme. According to the Table 4.9, 88.6 per cent of respondent do not own a house after

joining the microfinance. This gives clear indication that even though the credit that the

respondents received from the bank helped improved their living conditions and their

businesses, it had minimal positive impact on the ownership of homes.

Table 4.9 Does the respondent own a house after the joining the microfinance

House ownership after joining MF Frequency Percentage

Yes 8 11.4

No 62 88.6

Total 70 100

Source: Field Survey, December 2015

4.11 Ownership of household assets by respondents

The ownership of household assets question was asked to ascertain whether respondent were

able to acquire or increase the number of household assets after accessing credit from the

35
bank. An analysis of Table 4.10 indicated that majority of respondents who constitute fifty

nine (59) owns TV sets before joining the microfinance whereas four (4) respondents

acquired TV sets after joining the scheme. This means that the access of microfinance credit

by respondents did not have much impact on TV acquisition because more than half of the

respondents own TV before joining the bank.

According to the same Table, the number of respondents who owned gas stove after joining

the microfinance stands at twenty five (25) whereas twenty two (22) respondents owned it

before joining the microfinance. This means that microfinance credit access enable twenty

five (25) respondents to acquire gas stove. The microfinance did not have much influence on

room furniture acquisition because only six (6) respondents were able to acquire the item

after joining the group whereas thirty four (34) respondents owned it before joining the

scheme.

Fourteen (14) respondents were using refrigerators before joining the scheme whereas thirty

six (36) respondents were able to purchase the item after joining the scheme. This means that

the microfinance credit had really helped more than half of the respondents to improve their

earnings, and as a result were able increase the number of household assets used in their

various homes. Forty eight (48) respondents acquired radio sets before joining the scheme

whereas five (5) respondents acquired the item after joining the scheme.

On ownership of bicycle/motor cycles, five (5) respondents owned bicycles/motor cycles

before joining the scheme whereas only one (1) acquired the item after joining the scheme.

The acquisition of bicycle/motor cycles before or after joining the scheme is very low

probably because all the respondents were female and scarcely use this item.

Respondent‟s acquisition of mobile phone before joining the scheme is more than triple as

compare to after joining the scheme. This may probably be because of increasingly

importance of the use of mobile phone. According to Table 4.10, no respondent acquired

36
vehicle before joining the scheme and only one (1) respondent acquired the item after joining

the scheme. The price of the vehicle as against the purchasing power of the respondents

might be the reason behind the low patronage of the asset even though acquisition before

joining the scheme is zero.

Table 4.10 Ownership of household assets by respondents

Assets Before joining MF After joining MF

TV Sets 59 4

Gas Stove 22 25

Room Furniture 34 6

Refrigerator 14 36

Radio Sets 48 5

Bicycle/Motor Cycles 5 1

Mobile Phone 46 13

Vehicle(s) - 1

Source: Field Survey, December 2015

4.12 Presence of Bank Official in the Respondent’s Community

When the question about as to whether respondents encounter any bank officials in their areas

to ascertain the level of penetration of the microfinance services in the rural areas, out of the

seventy (70) respondents from Table 4.11, forty four (44) said they worked with bank before

but even that majority confirmed that they were once saving with Akuapem Rural bank

whereas twenty six (26) said they never worked with any bank before. This shows that the

bank was able to reach out twenty six (26) respondents who never have an encounter with a

bank before.

37
Table 4.11 Presence of Bank Official in the Respondent’s Community

Bank official Frequency Per cent

Yes 44 62.9

No 26 37.1

Total 70 100

Source: Field Survey, December 2015

4.13 How Akuapem Rural Bank help alleviate poverty in its catchment areas

Akuapem rural bank gives microfinance credit to individuals as well as groups in its

catchment areas of operation. According to the head of microfinance of Akuapem Rural

Bank, the microfinance was established to help alleviate poverty in the rural areas of their

operation. The group loan was introduced because the bank realized that the poor in the rural

communities were not able to provide guarantors to access the credit. It was therefore, the

bank‟s initiative to extend credit facility to the rural people through the group loans.

The groups are formed by the rural people with guidance from the bank officials. The

membership of each group must not exceed forty (40) and not less than fifteen (15) and the

age must be 18 years and above who are ready and willing to work.

The bank requires the group to save for not less than six weeks before they are eligible for

credit and the guarantee is by group solidarity. The activities of these microfinance clients

include petty trading, food vending, farming and fashion. The maximum amount that a

microfinance client can access at a time as at December 2015 was Ghc5, 000.00 and the most

important thing is the client‟s ability to generate enough income to repay the loan.

Table 4.12 gives information on the loan disbursement of microfinance clients and other

forms of clients of Akuapem Rural Bank from 2010 to 2015. According to Table 4.12, the

bank disbursed a total amount of Ghc63, 141,002.94 of which microfinance clients numbered

38
15,818 accessed Ghc23, 943,010.00. Almost all the microfinance clients have accessed the

loans more than twice since there were three cycles of loan assessment in a year. From the

table again, it had been established that the average default rate of the period under review is

0.041%. This means that over the period under review, the bank was able to recover more

than 99% of the loan repayments from the microfinance clients and this gives clear indication

that the customers were able to make enough income to repay their loans.

Technically, one can say the default rate is zero because all the microfinance groups have

initial savings (group accounts) with the bank and such savings can be used to defray which

ever group that defaults. In percentage wise, the bank used 37 per cent of its loan portfolio on

customers of the microfinance. This shows that the microfinance department plays major role

in the performance of the bank. Once the default rate of the microfinance clients of the bank

is very low, it means that the businesses of respondents were making more than enough

profit. This helped improved the living conditions of their families; hence reduce extreme

poverty in their households.

39
Table 4.12 Loan disbursement of Akuapem Rural Bank from 2010-2015

Year Total loans Loan allocation to MF loan Per Number of Default rate

disbursed MF cent of total MF clients of MF loans

loans

2010 GHC 6,177,000.21 GHC 1,972,000.00 32 2246 0.010

2011 GHC 8,591,000.59 GHC 2,788,000.00 32 2434 0.039

2012 GHC 10,504,000.75 GHC 3,846,000.00 37 2543 0.062

2013 GHC 12,613,000.66 GHC 4,721,000.00 37 2710 0.038

2014 GHC 11,842,000.48 GHC 4,207,010.00 36 2870 0.051

2015 GHC 13,414,000.25 GHC 6,409,000.00 48 3015 0.046

Total 63,141,002.94 23,943,010.00 37 15,818 0.041

Source: Akuapem Rural Bank Limited, 2015.

40
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary of Findings

More respondents when asked the positive impact of accessing microfinance credit, they gave

multiple answers. Majority of the respondents said they were able to increase goods bought

(raw materials for their businesses) and at the same time increase initial capital as well as

paying for goods in cash.

When respondents were asked the sources of their finance before joining the microfinance,

more than half of the respondents said they purchase goods on credit followed by finance

from family members. It‟s only few respondents who said they got their finance from money

lenders, friends and personal savings.

The second research question was about how the provision of microfinance by the bank

helped improve the living conditions of poor households in its catchment areas. When

respondents were asked how the services of the microfinance helped them improve their

living standard, majority of them stated that they are now able to provide basic needs of their

dependents which include clothing and school fees followed by provision of basic needs and

saving at the same time. This means that more parents can now buy their wards adequate

school materials to facilitate their education.

The question on how respondent‟s meal or food intake has changed after joining the scheme,

more than half of the respondents affirmed that their meal have significantly improved. This

means that if before joining the scheme, respondents use to have one meal a day, now they

can enjoy more than one meal per day whereas only few respondents said their diet have not

improve much.

41
On the ownership of homes before joining the scheme, more of respondents have never live

in their own home before joining and even after joining the scheme. According to majority of

respondents, their concentrations are more on providing the basic necessities of their

dependents and investing in their businesses in other to end the vicious cycle of poverty and

when they are stable financially, they will build.

On the acquisition of household assets, more of respondents owned TV, radio sets, mobile

phones and bicycle/motors before joining the microfinance scheme but with respect to gas

stove and refrigerator, more respondents acquired the items before joining the scheme. On the

ownership of vehicle, it was only one respondent who said she acquired the item after joining

the scheme.

5.2 Conclusions

The study of the field data discovered that, majority of the respondents are petty traders

followed by food vendors. Farming, agro-processing and fashion are in the minority. The

credit allocated to the microfinance sector is 38 per cent of the total loan portfolio of the

bank. Apart from the dominant economic activities, other individuals access the microfinance

credit for household consumption which becomes increasingly difficult for them to repay the

loan and since its group guarantee, the group members have no option than to contribute and

pay.

5.3 Recommendations

The following recommendations are given as a result of the finding from the field work;

The finding of the research revealed that out of 70 respondents, only 5 farmers benefited from

the microfinance credit. This is because more men are involved in farming than women yet

men have been disqualified from joining these groups or forming one in order to benefit from

42
the credit provided by the bank. Therefore, to improve farming in order to help alleviate the

level of poverty in rural areas, men must be included in the formation of the groups and

monitored strictly to ensure that they repay the loan. This in the long run will help diversify

agriculture and improve the living conditions of the rural poor.

The bank must also expand its microfinance activities to cover more people who are qualified

for the credit. This will help the rural people who sit idle because of lack of initial capital to

start their businesses to be more proactive to enable them contribute meaningfully to living

standard of their families. This will help increase the economic activities of the rural

communities, hence reduce extreme poverty.

The capacity of the microfinance of the bank must be enhanced so it can cover more

communities in the rural areas. This means that the bank alone cannot do this work because

the bank has competing needs which are equally important. Government and other

development partners must provide enough funds to the rural banks to embark on mass

microfinance activities in the rural communities since they know the terrace more and are

able to recover the loan with low level of default rate.

The bank officials should make it a point to visit their microfinance customers at their

business places in order to encourage them and advise them on best practices to enhance the

growth of their businesses. This will help boost the morales in their customers and as a result

will enable them to open up on the problems that they are facing in their businesses to the

officials.

There is also the need of the bank to develop client-friendly products and wide range of

products which are relevant to the needs of rural folks especially the poorest of the poor. This

will encourage them to own the products and work assiduously to improve their conditions.

43
More so, the bank must be ready to invest into research in order to render tailor-made

services to the local people. Market research helps to predict and control cost to better

innovate and to maintain practical geographical coverage. This will ensure that loan officers

are not over-stretched and can have effective follow-up with clients.

There must be a regular staff training to improve operational efficiency, sustainability and

outreach. This training includes financial management, credit and savings management and

methods. Staff training creates social ties between staff members and strengthens overall

morale, loyalty and the institutional identity.

44
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 APPENDICES

QUESTIONNAIRE FOR HEAD OF MICROFINANCE

This questionnaire is to solicit for information on the effects of Akuapem Rural Bank

Microfinance Scheme in reducing the level of poverty among rural communities in the

Akuapem North Municipality. Any information provided will be kept confidential and will be

used for the intended purpose.

Title and position of official …………………………………………………………………

1. Why was the microfinance scheme established?

………………………………………………………………………………………..

…………………………………………………………………………………………

2. Who can access microfinance? Cycle as many as appropriate.

I. By individual

II. By organized group

III. Both

3. If by a group, what does the bank require of them?

I. Certificate of registration

II. Regulations governing the group

III. Group solidarity

4. Are there any commitments on the part of clients in terms of savings with the bank

before they can access the credit?

Yes [ ]

No [ ]

5. If yes, how long must the clients save with the bank before they can access the credit?

..................................................................................

49
 6. What are the economic activities of your microfinance clients? Cycle as many as

appropriate.

I. Petty Trade [ ]

II. Farming [ ]

III. Animal rearing (poultry, piggery, sheep and goat, cattle [ ]

IV. Agro-processing [ ]

V. Fashion (hair dressing, dress making) [ ]

VI. Food Vending [ ]

VII. Other (specify) [ ] ………………………………………………

7. Does the bank have different criteria for individuals and group?

Yes [ ]

No [ ]

8. If yes, how are the loans secured by a group? Cycle as many as appropriate.

I. Collateral (specify)

II. Guarantee by any worker(s)

III. Group solidarity

9. In your view, what are some of the indications that show your microfinance services is

improving lives and changing destinies?

………………………………………………………………………………………………

…………………………………………………………………………………………………

…………………………………………………………………………………………………

…………

50
10. Please complete the attached

PORTFOLIO OF LOANS DISBURSED AND THE NUMBER OF BENEFICIARIES

Total loan Total number Allocation Disbursed to No of MF Default

Year disbursed by of loan clients to MF MF clients clients rate for

the bank in that period MF clients

2010

2011

2012

2013

2014

2015

Total

51
 CUSTOMER’S QUESTIONNAIRE

This questionnaire is to solicit for information from customers of Akuapem Rural Limited

Bank on the effects of Akuapem Rural Bank Microfinance Scheme in reducing the level of

poverty among rural communities in the Akuapem North Municipality. Any information

provided will be kept confidential and use it for the intended purpose.

Customer’s Personal Details

Please give honest respond by ticking (√) where appropriate.

1. Sex Male [ ] Female [ ]

2. Age 18-25yrs. [ ] 26-40yrs. [ ] 41-60yrs. [ ] 61yrs. and above [ ]

3. Educational Background

Tertiary [ ]

Second Cycle [ ]

Basic School [ ]

Non Formal [ ]

No Education [ ]

4. How long have you been on the microfinance scheme?

Under one year

1-3 years [ ]

3-5 years [ ]

5-7 years [ ]

52
 7-9 years [ ]

10 years and above [ ]

5. Respondent‟s occupation

I. Petty Trade [ ]

II. Farming [ ]

III. Animal rearing (poultry, piggery, sheep and goat, cattle [ ]

IV. Agro-processing [ ]

V. Fashion (hair dressing, dress making) [ ]

VI. Food Vending [ ]

VII. Other (specify) [ ] ………………………………………………

Impact of microfinance on living conditions of beneficiaries household

6. Has joining the microfinance scheme improved the living conditions of your

household? (Tick as many as appropriate)

Can now buy clothing for children [ ]

Can now pay school fees for dependants [ ]

Can now pay utility bills [ ]

Can now pay for rent [ ]

Can now save [ ]

Any other (specify) ………………………………………………….

7. How has your meal or food intake changed since you joined the scheme?

Improved significantly [ ]

53
 Not improved much [ ]

Remained the same [ ]

8. Did you live in your own house before joining the microfinance scheme?

Yes [ ]

No [ ]

9. Do you now own your house after joining the microfinance scheme?

Yes [ ]

No [ ]

10. What are some of the under listed items do your household own?

Item Before After

(1) TV sets

(2) Gas stove

(3) Furniture

(4) Refrigerator

(5) Radio sets

(6) Bicycles/Motor Cycles

(7) Mobile Phone

(8) Car(s)

54
Effects of microfinance on the businesses of beneficiaries

11. What was/were the sources of finance for your business before joining the

microfinance scheme? (Tick as many as appropriate)

Purchase stock on credit [ ]

Money lenders [ ]

Friends [ ]

Family members [ ]

12. Since you joined the microfinance scheme, how much have you accessed?

………………………………………………………………………………………….

13. What are some of the positive impact of the microfinance to your business?

Able to increase stock intake [ ]

Able to pay cash [ ]

Able to increase the initial capital [ ]

Put up my own shop [ ]

14. Have you ever noticed the presence of any bank officials in your community before?

Yes [ ]

No [ ]

15. Before joining the microfinance, did you access any credit from a bank before?

Yes [ ]

No [ ]

55
16. What are some of the challenges you face with the Akuapem Rural Bank Microfinance

Credit? Tick as many as applicable.

I. Delay in approving loan facility [ ]

II. High interest rate [ ]

III. Unfriendly way of loan recovery [ ]

IV. High penalty when one default [ ]

V. Other (specify) ……………………………………………………..

56